Venezuela’s decision to abandon the ICSID is just the tip of the iceberg. The real blow for Spanish investment will be felt if it also turns its back on bilateral agreements.

On January 21 Venezuela condemned the ICSID (International Center for the Settlement of Investment Disputes) Convention, which means that on July 25 it will be leaving the world’s leading investment arbitration organism. Venezuela follows in the footsteps of Bolivia and Ecuador, which left ICSID in 2007 and 2009, respectively.

Needless to say this is bad news. It is bad for Spanish firms like Repsol, Telefónica, BBVA, and Mapfre, whose heavy investment in Venezuela can only be amortized on a long-term basis. It is also bad for the Venezuelan people, because it may trigger a flight of investment capital from sectors that are key for the development of the country’s economy and the well-being of its citizens.

Legal rigor should, however, serve to temper the alarmism with which certain members of the Spanish media have delivered the news. The February edition of El País said that “Telefónica, Repsol and BBVA will be losing their protection from Chávez as from July”. The reality is that Spanish investments in Venezuela were not guaranteed by the country’s membership of ICSID as much as they were by its adherence to the bilateral APPRI (Acuerdo para la promoción and protección recíproca de inversiones) treaty held between Spain and Venezuela since 1997. It is this, rather than the ICSID agreement, that permits Spanish firms to react effectively against any potentially harmful action, such as an expropriation or nationalization without adequate recompense, or any other unfair, arbitrary or discriminatory treatment meted out by the Venezuelan state.

This does not mean that Venezuela’s withdrawal from ICSID will not do any harm whatsoever to Spanish firms. On the contrary, it will cause them a very specific kind of damage, namely that from now on, Spanish investors will not be able to take their grievances to the ICSID as such ? which is only competent if both states form part of the Washington agreement, but will instead have to take them to the so-called complementary mechanism of ICSID, whose job it is to administrate cases in which the state in receipt of the investment does not belong to ICSID.

Both the ICSID arbitration awards and ICSID’s complementary mechanism are, of course, based on the compulsory embargo and awarding of all assets – oil, real estate, shareholdings, bank accounts? belonging to the Venezuelan state in any part of the world, and which do not enjoy special immunity. So what exactly is the difference? The difference lies in that the framework used to apply the execution of the arbitration awards will no longer be the ICSID Convention, but rather the New York Convention of 1958. The application of these treaties renders the ICSID arbitration awards immune to all resistance, while those of the complementary mechanism allow for state opposition. Said opposition may not prevent a detailed review of the issue, but it can most certainly make things more awkward and tiresome.

In short, although Venezuela’s withdrawal from ICSID reduces the status of the guarantee hitherto afforded to Spanish investments from plenary to semi-plenary, APPRI will continue to provide basic protection.

What raises serious concerns about the news from this Caribbean country is not its withdrawal from ICSID, but rather the statements made by the Venezuelan government, which has announced the “renegotiation” of the larger part of the more than 20 APPRI agreements to which it is subscribed.

Will it really take such a measure? Well, there are precedents. Bolivia withdrew from ICSID in 2007, and in 2012, just a few days ago, it announced that it considered its APPRI agreement with Spain to have terminated. Ecuador, denounced thirteen of its 19 APPRI agreements to which it was subscribed the moment it withdrew from ICSID in 2009 ? Fortunately the Hispano-Ecuadorian accord was not one of them. It will therefore not be surprising if Venezuela followed up its withdrawal from ICSID with the denouncement of at least some of its APPRIs.

The denouncement of the APPRI treaty between Spain and Venezuela would not have an immediate effect on investments that have already been made, which would continue to enjoy the protection afforded by the APPRI for a further ten years. But any future investments would be immediately exposed to the dangers posed by Bolivarian elements.